Bunds Tumble On Report ECB May Lend Out More Bonds To “Unfreeze” Broken Repo Market

As we showed yesterday, while the rest of the European bond market has suffered from the some “trumpflation-linked” weakness in the long end as US Treasurys in the aftermath of the Trump election as inflation and new supply fears grow, short-dated German bund yields unexpectedly plunged to record lows…
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… as a result of what appears to be a massive year-end collateral shortage (which has come in about a month early) with demand for German collateral soaring and reflected in repo funding levels as funds are now forced to pay up to 1.5% to borrow a 10-year Bund, up from some 0.40% a year ago, according to Icap data..
Today we saw more of the same in early trading, as the German 2Y continued to outperform on collateral shortage fears, which likely prompted Reuters to report that the ECB is looking for ways to lend out more of its huge pile of government debt to avert a freeze in the 5.5 trillion repo market that underpins the financial system, manifesting in the surge in short-term Bunds.

This post was published at Zero Hedge on Nov 23, 2016.